ANOTHER LARGE BLACK HOLE: PART I

Publication: China Brief Volume: 2 Issue: 14

By Gordon G. Chang

How much do China’s unfunded pension and other social security obligations amount to? Nobody knows, not even the technocrats in Beijing. There is, however, one thing that’s clear: The nonpayment of pension and other welfare benefits is an explosive social issue. Tens of thousands of workers took to the streets across the country in March and April of this year to demand payments. They remind us that this is no academic problem.

The People’s Republic is an “excellent example of a low information environment.” And that country excels in hiding information about its social welfare obligations. “China seems to have an economy bursting with ‘black holes,'” writes South China Morning Post columnist Simon Pritchard. As the world has learned by now, the extent of these unfunded obligations is one of them.

Let’s begin with what we know. Many workers today are entitled to pensions and other benefits, but they only have a claim against their “work unit,” the term for “employer” in the Chinese Communist dictionary. As a result, some do not receive anything because their work units are insolvent or no longer functioning. Beijing is trying to remedy the problem, and in the process build a more modern economy, by transferring pension and social security obligations from enterprises to the state. During the last decade the central government has been slowly putting into place a nationwide system for workers (though peasants, some 900 million of them, are almost entirely excluded).

THREE FUNDAMENTAL POLICIES